The importance of spatial reuse in wireless ad-hoc networks has been long recognized as a key to improving the network capacity. In this paper, we show that (i) in the case that the achievable channel rate follows the Shannon capacity, spatial reuse depends only on the ratio of the transmit power to the carrier sense threshold; and (ii) in the case that only a set of discrete data rates are available, as a control knob for sustaining achievable data rates, tuning the transmit power provides more sophisticated rate control over tuning the carrier sense threshold, provided that there is a sufficient number of power levels available. Based on the findings, we then propose a decentralized power and rate control algorithm to enable each node to adjust, based on its signal interference level, its transmit power and data rate. The transmit power is so determined that the transmitter can sustain a high data rate, while keeping the adverse interference effect on the other neighboring concurrent transmissions minimal. Simulation results have shown that, as compared to existing carrier sense threshold tuning algorithms, the proposed power and rate control algorithm yields higher network capacity.